Finance and Administration

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This is part of "Principles for Grantmakers & Practice Options for Philanthropic Organizations."

View the complete table of contents or download the PDF.

This section focuses on the organization's financial management, spending and investment of its funds, and on internal operation and administration of its records and other information, technology and systems.

Options highlighted in bold are required by law. All other options are voluntary practices that individual organizations can choose to implement.

Investments

  1. To fulfill our legal and fiduciary responsibilities, our board members make prudent investment decisions and avoid jeopardizing investments.
  2. In making investment decisions, our board members consider the extent to which the values and principles that guide our grantmaking also inform our investment policies and decisions.
  3. Whenever possible, we consider socially responsible investments in line with our legal and fiduciary commitments. Note: Often, corporate foundations and corporate grantmakers handle investments through their corporate finance departments or corporate treasury.

Investments for Foundations with Endowments (or those with assets to invest short- or long-term)

  1. As part of our governance policies, we have a written investment policy, approved by the board, to guide our investing activities regarding the balance between risk and return in the context of our investment goals, adequate for our size and complexity.
  2. We review and update our investment policy regularly.

Taxes

  1. We annually file a tax return (990 or 990-PF) in compliance with the law.
  2. We file any additional taxes required by law for our type of philanthropic organization, such as excise taxes on investment earnings or unrelated business taxes.

Expenditures

  1. We ensure that our administrative expenses (including travel expenses) are reasonable, as defined by law.
  2. We periodically review the original intent of our founding donor(s) to ensure that, in today's society, our spending policy, grantmaking and administration reasonably reflect the donor(s) intent. Note: Generally not applicable to corporate foundations and giving programs.

Financial Management

  1. We have financial management policies and procedures that are adequate for our size, nature, complexity and mission.
  2. We establish an effective internal controls system of checks and balances and formalized recordkeeping.

Records Retention & Management

  1. We adhere to a responsible record retention policy.
  2. All grant decisions are recorded, and we maintain appropriate records, based on requirements of the law, such as expenditure responsibility, scholarships or grants to individuals.

Note: The law does not require a private foundation to have a record retention and destruction policy, but having such a policy is becoming increasingly critical to protect a foundation from legal liability. Although provisions of the Sarbanes-Oxley Act of 2002 apply only to public companies, the Act has made it easier for the government to prosecute cases in which individuals and organizations (including charitable institutions and their managers) have obstructed justice by destroying documents.

Audits

  1. While not required by law for private foundations, we conduct an independent audit or internal financial review of our financial statements as appropriate to the size, nature and complexity of our organization.
  2. If we are a public charity or community foundation: We comply with state laws and regulations for conducting and reporting an annual audit. (Minnesota organizations that solicit contributions and have total annual revenue of more than $750,000 are generally required to have their financial statements audited.)
  3. If we conduct a regular independent audit: We have an audit committee that is not compensated. Note: Although many foundations do not have separate finance and audit committees, there is growing federal/state interest in requiring audit committees for boards of charitable organizations of a certain size. For example, the California Nonprofit Integrity Act, which passed in 2004, requires charitable corporations (but not charitable trusts) with gross revenues over $2 million to have an audit committee.
  • The audit committee includes at least one person who has financial expertise, and is chaired by a trustee/ director who is not an officer of the governing body.
  • We have ensured that the auditor has the requisite skills and experience to carry out the auditing function for our philanthropic organization and has carefully reviewed the firm's performance.
  • Our audited financial statements are available and accessible to the public, preferably on our website (if we have a website), within a reasonable amount of time after the close of our fiscal year.
  • We request the partner-in-charge be rotated every five years (if we retain the same audit firm).